Could the banks post finanacial crisis reluctance to make short term loans hurt the economy?

Brookings is out with a study about the large banks post 2007 financial crsis lending….

The cry by many and the Fed’s for the banks to stop making short term loans that might be risky has dried up the banks lending money….

Those banks have NOT been growing…

They ARE profitable because they have cut their risk…But they ain’t lending like they used to….

The Free – For – All days are over…..

And the Banks have changed ….

But….

Is all of this good for the nation’s economy ?

During the crisis itself, federal banking and financial regulators and the Treasury encouraged three of the four large banks to take over other banks that were in financial trouble as a way of containing the effects of the crisis. JPMorgan took over Bear Stearns and Washington Mutual; Bank of America took over Countrywide and Merrill Lynch, and Wells Fargo took over Wachovia; Citibank did not make significant acquisitions. Given these sizable purchases one might reasonably expect that this meant the largest banks would grow even faster as a result of the crisis and they would hold a larger share of total bank assets. We set out to find if that did indeed happen – and it didn’t. The Big Four’s rate of growth dropped to 1.8 percent a year from 2009-2014 and their share of total assets actually declined slightly, from 52.5 percent in 2008 to 51.2 percent in 2014.

We also looked at changes in the composition of bank assets and liabilities. We found that the banks cut back on their reliance on short term wholesale funding, consistent with the direction of their regulators. And the banks experienced large increases in the volume of deposits they hold. Once the crisis occurred, though, the growth of loans dropped sharply relative to the amount of deposits. Because of a reluctance to lend, a lack of demand for loans, or some combination thereof, the intermediation process at banks – providing funding for investment and growth — has not been working in the same way as before the crisis….

11 thoughts on “Could the banks post finanacial crisis reluctance to make short term loans hurt the economy?”

Breaking up the banks is one of those ideas that sound great in theory but less so in reality, a no-brainer until you run it through your brain. It’s not that size doesn’t matter at all, but the debate over size has been absurdly one-sided, ignoring the benefits of bigness, the potential costs of breakups, and what’s already been done to address the too-big-to-fail problem. With Wall Street salaries and bonuses once again as exorbitant as they were before the recent financial crisis, there will be huge pressure on 2016 candidates to prove their hostility to financial elites; on the Democratic side, Sanders and Martin O’Malley are already calling for bank breakups, so Hillary Clinton will surely be tempted to join them. But before financial disintegration becomes a populist litmus test, people ought to understand what it would mean.

For example: Did you know that the financial institutions at the heart of the 2008 crisis were not the very biggest banks? That the very biggest banks were actually indispensable to defusing the crisis? That the U.S. banking system is far less top-heavy than its foreign counterparts? It’s possible to know those facts and still support the Too Big to Fail, Too Big to Exist Act, the chainsaw of a bill that Senator Sanders and Congressman Brad Sherman filed in early May. But they’re important facts…..

Remember how we’re told that anything that cuts corporate revenues is a “job killer”, and that anything that increases corporate profits creates jobs.

Well, only 2% of last year’s corporate profits were reinvested in the business, or in any business. The rest went into dividends and stock buybacks (inflating stock prices artificially by increasing scarcity, and incidentally boosting executives’ “performance-based” compensation).

Quite profitable companies like Cisco were actually laying off workers rather than hiring them, building plant, buying equipment or expanding their lines of business. So much for America’s wonderful free-market job engine.

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Divided Nation

Feast for investors sells workers short

¶ As US companies spend billions repurchasing shares, employees and economy may pay the price

By Michael KranishBoston [Sunday] Globe Staff

May 31, 2015

One in a series of occasional articles on issues that polarize the American electorate.

Accordingly,he’s not necessarily in favor of the present system at ol.This entire article is a defense of the present system.Establishmentarians like Grunwald and James seemingly can’t comprehend that there are people who simply don’t accept their stand pat views.

But that’s not my main criticism of the puff piece for the Big Banks.The crux of his argument is that “reform,” mostly embodied in the Dodd – Franks measure ,is “working.” Well there’s one group that doesn’t think it’s working,the banks themselves,who,since its inception have been attempting,with Republican support,to undermine if and repeal it.

In other words,all the attributes Grunwalds consigns to the banks ,they themselves effectively reject.They simply want more and more and more.

When I hear the words “big banks” there are only three words that come to mind,well one really repeated thrice,

REGULATION,REGULATION and REGULATION.

Finally, his view that the Big Banks came to the “rescue” of the financial system is a gross oversimplification.Basically they were FORCED into it by the Feds with threats and cajolery with the dark cloud ofnew rules and regulations being hung over their heads.

Contrary to Grunwalds piece,the Big Banks in my view have caused great damage to the country and his insinuation that they aRe “needed” is pure propaganda.